James Carpenter signed an agreement to buy undeveloped land in Austin, Texas, in 2004, and obtained investment funds to finance the purchase from Sandra McBeth and James Reynolds, a married couple.

Carpenter informed McBeth and Reynolds that the buyer who had planned to buy the property previously had been unable to close the transaction because of an issue with the city of Austin around the ability to run water utilities to the property, but told the couple that the water issue had been resolved.

Carpenter entered into a limited partnership agreement with McBeth and Reynolds for purposes of acquiring the property. Carpenter signed the agreement not only on behalf of the general partnership, but also as the signor for two other limited partners participating in the transaction: Texas Water Solutions and Texas Water Management.